Wednesday, August 31, 2016

One of my reading projects over the past year is to learn more about empires:how they are established, why they endure and why they crumble.

To this end, I've recently read seven books on a wide variety of empires. The literature on empires is vast, so this is only a tiny slice of the available books. Nonetheless I think these 7 titles offer a fairly comprehensive spectrum:

I was not exposed to much history of the Byzantine Empire in high school or college, so I found the last book of particular interest, despite its dry academic style.

The Byzantine Empire, based in Constantinople (now Istanbul), began as the Eastern Roman Empire when the Roman Empire was split into East and West to facilitate defense.

In the original conception, the two halves would be jointly ruled by two emperors. But as the Western Roman Empire frayed and devolved, power shifted to the still-vibrant Eastern Roman Empire, which spoke Greek rather than Latin and was Orthodox Christian rather than Catholic.

The Byzantine (Eastern Roman) Empire endured from the western empire's fall in 476 A.D. to 1453 A.D., when Constantinople fell to invading Turkish forces.

Thus the Byzantine Empire endured for roughly 1,000 years after the Fall of Rome (977 years, to be exact). It was an Empire that spanned the Medieval ages, that reached its zenith around 1025 A.D., and lasted right up to the dawn of the Renaissance.

How did Byzantium endure for 1,000 years after the fall of Rome? There are many factors, of course, but I think these four elements are the "secret sauce" of the Eastern Roman Imperial longevity:

1. A stable currency. When the Empire devalued its currency for the first time in the 13th century, it triggered a long-lasting loss of faith in the currency. This devaluation was the beginning of the end, as the Empire never recovered its financial footing.

Lesson: you cannot devalue your way to stability, influence, power or prosperity.

2. Multiple pathways of social mobility via the church, military and civil bureaucracy. Men from poor provincial villages and towns could make their mark and rise to positions of wealth and power via joining the church or military hierarchies, or by serving ably in the Imperial bureaucracy. Women could rise to positions of wealth and influence via marrying well.

3. Pervasive tax collection to fund defense. Empires and states were under essentially constant attack for much of this 1,000 year period of history, and the empire collected land and other taxes via a vast bureaucracy of tax records and collections. Interestingly, it is estimated that the Imperial taxes absorbed about 20% of all income--roughly the same percentage the U.S. government absorbs.

When the tax system fell into disrepair, revenues sagged and defenses almost failed. Competent leadership restored the tax system and defenses, giving the Empire another few hundred years of life.

4. Safe trading routes and markets. The Empire provided protected sea and land routes for traders from everywhere, and Constantinople offered a vast depot for trading and manufacture. Much of the Empire's wealth and tax revenues flowed from trade, and the Empire maintained a long history of offering lucrative trade deals with allies such as Venice.

I see these dynamics as being just as critical in the present age. If a nation's currency loses value, the ladders of social mobility are broken, the tax system is corrupt and/or unfair and trade is restricted or suppressed, the nation/empire is doomed to erosion and collapse.

This essay was drawn from Musings Report 21. The Musings Reports are emailed weekly to subscribers ($5/month) and major contributors ($50+ annually). If you'd like to support this blog, please consider subscribing (links below or in the right sidebar).

Tuesday, August 30, 2016

Those without value-creating human/social capital will be mired in a low/minimum wage environment that will make it difficult to escape debt-serfdom.

Let's start with the sobering reality that the Millennial generation faces economic challenges that are unique to this era: sky-high student loan debt, soaring costs for basics such as rent and healthcare, a stagnant neofeudal crony-cartel economy and an intellectually bankrupt status quo in thrall to failed ideologies: Keynesian Cargo Cult central banking, outdated models of capital and labor and an unthinking worship of debt-funded centralization as the "solution" to all social and economic ills.

The potential solutions are also unique to this era. Never before has humankind had such a wealth of revolutionary decentralizing technologies: nearly friction-free peer-to-peer networks and commerce, decentralized cryptocurrencies and the expansion of what my friend G.F.B. describes as neo-tribalism: opt-in communities that are not bound to geography or central-state imposed identities.

Many smart, well-informed people see massive government stimulus using borrowed money as the "solution" to Millennial impoverishment and under-employment--in other words, more debt-funded centralization.

The idea here is that such debt-funded stimulus will employ millions of Millennials to rebuild America's crumbling infrastructure.

While we all understand the appeal of this proposal, those proposing it have little experience in actually building or repairing infrastructure. The assumption that such massive public spending will create millions of jobs is never examined closely, nor is the impact of adding trillions of dollars in additional public debt considered.

What such schemes boil down to is: Millennials are supposed to borrow trillions from their future earnings and their children's earnings to fund a few years of employment.

But what happens after the bridges get repaired and the homeless housing gets built? In the conventional fantasy, the economy magically moves into a self-sustaining growth cycle because those construction workers will be buying more coffee at Starbucks, more lunches at Mickey D's, and so on.

But the cold reality is: once the money has been spent, those jobs go away.Once the bridge has been repaired with public money, the workers are laid off because there is no private-sector funding for more bridges or homeless housing, etc. Once the construction workers are laid off, sales at coffee shops and fast-food outlets fall back to pre-stimulus levels.

The surge in employment fades as soon as the funding dries up. Additionally, there is little productivity gain from the infrastructure spending: the repaired bridge performs the same service as the aging bridge.

The problem is this: after the government funding dries up, we still have a corrupt crony-cartel economy based on predatory privilege, parasitic rackets and central-state enforced fraud. In other words, we still have an economy that strangles productivity that could benefit the many in order to further enrich the few.

And as Gail Tverberg and Art Berman have explained, we have an economy that is facing lower energy consumption per capita (per person)--even if oil prices remain around $40/barrel.

Central state stimulus funded by debt only creates a brief illusion of prosperity; it changes nothing in our broken system. All it does is burden a heavily indebted generation with more debt--a generation that cannot afford to consume more because so much of their income is already devoted to debt service.

The other fly in the ointment is this sort of spending doesn't create as many jobs as the uninformed assume. If you stop and look at a bridge being repaired, you'll note the crew is small--in many cases, a half-dozen or less. The same is true of road resurfacing crews and other infrastructure repair work.

You'll also notice the crew has skills that take years to acquire: operating a crane, welding, etc. The unskilled are limited to waving the traffic-control flags.

The same is true of new construction. If you count the workers erecting large new residential buildings, you'll note a few dozen workers on site--and the buildings are finished in a matter of months.

Since on-site construction labor has been more expensive than factory labor for decades, construction fabrication has been pushed to the factory. Beams, walls and other components are assembled at the factory, where wages typically remain between $15 and $20/hour. These components are shipped to the site and assembled by small crews of skilled workers.

Much of the expense in construction is now in the financing (private or public, the interest payments and bond sales fees constitute a large percentage of total construction costs), permits/fees and materials. The actual labor component of major construction/repair work is relatively modest.

It makes no financial sense to hire people with little experience for high-skill tasks. What makes sense is to increase the hours of the experienced workers the contractor already employs. What is the payoff for a contractor to spend three years training neophytes to become productive? That only makes sense if you can keep the trained worker, and the intermittent nature of construction work means your workforce shrinks when demand falls. The worker you trained goes off to work for somebody else.

The beneficiaries of infrastructure stimulus will be workers that already have the requisite skills and experience--Gen X and those Millennials who have completed formal or informal apprenticeships.

But even these workers have to look beyond the few years of infrastructure stimulus, and acquire whatever skills the private sector will need.

What's scarce are value-creating skillsets, most of which are path-dependent, i.e. they must be accumulated over years of work experience.

What creates value? The ability to solve problems and increase productivity.

If you want to know why the economy and Millennial prospects are both stagnating, just look at productivity--it's tanking:

As I explain in the book, the line between labor and capital is becoming blurred.Capital is increasingly intangible: the most productive forms of capital are human, social and intellectual--the knowledge, experience and networks acquired by people.

In contrast, the return on money--a traditional form of capital--is near-zero.

Owning a credential is not the same as owning skills. If we think of human/social capital as an asset, then we see a new line between labor and capital: labor is low-skilled labor with little scarcity value, and capital is high-skilled human/social capital.

Those without value-creating human/social capital will be mired in a low-wage/minimum wage environment that will make it difficult to escape debt-serfdom. To understand why human/social capital is the most important form of capital, we must understand that this capital asset is fundamentally an enterprise.

If we look at what wealthy households own, we note they own enterprises. This is not a coincidence, as wealth is generated by value-creating enterprises.

If you want to escape Minimum Wage Debt-Serfdom, start by developing skills that create value by solving problems and increasing productivity, which is another way of saying doing more with less.

Understand that your human/social capital is fundamentally an enterprise that you own and manage. Taking ownership of your capital and managing that asset as an enterprise is the first step to escaping stagnation.

Monday, August 29, 2016

Central banks can only do one thing, and that's provide monetary welfare for the wealthy.

The fact that central banks provide welfare for the wealthy is now entering the mainstream. The fact that all central bank policies since 2008 have dramatically increased wealth and income inequality is now grudgingly being accepted as reality by mainstream economists and the financial media.

The central banks' PR facade of noble omniscience on behalf of the great unwashed masses has cracked wide open. Even The Wall Street Journal is publishing critiques of Federal Reserve policies that suggest the Fed has no idea how the U.S. economy actually works because their policies have failed to help the bottom 95%.

The grudging admission that central bank policies have enriched the rich while failing to benefit the bottom 95% is a breakthrough--the stone wall of denial has finally been pierced. The mainstream media and the Establishment have resolutely clung to the self-serving fantasy that the Federal Reserve 1) knows what's it's doing and 2) is boosting a "recovery" that will soon achieve self-sustaining "escape velocity"--that is, the economy will generate its own growth and the Fed can dial back its zero-interest rate policy and all its other unprecedented monetary easing measures.

But like a strung-out junkie that needs ever-stronger injections of smack just to stay alive, the U.S. economy is now totally and completely dependent on central bank heroin to keep from crashing. Rather then wean the economy of central bank largesse, the Fed has made the entire economy dependent on zero interest rates, central bank asset purchases and quantitative easing.

We now have the charade of Chief Heroin Pusher Janet Yellen claiming the addict is "recovering" while she shoves another needle of monetary smack into the comatose U.S. economy. The Fed fantasy was that boosting the wealth of the obscenely wealthy would "trickle down" to the bottom 95% via "the wealth effect"--as stocks and bonds rose in value, households would feel wealthier and happily plunge deeper into debt.

Apparently the hordes of PhDs and "professional" economists in the Fed were incapable of observing that 3/4 of all financial wealth is held by the top 5%: the top 1% owns 43% and the next 4% own another 30%. The upper-middle class owns 15% and the bottom 80% own what little is left: "wealth" such household belongings and equity in homes that can no longer be extracted.

Globally, the top .7% (less than 1%) own 45% of all wealth and the top 8% own 85% of all wealth:

While the spending of the bottom 95% stagnates, spending by the top 5% that have benefited from the Fed's welfare for the rich has soared.

If you glance at this chart, it's no longer a mystery why most of the new jobs in the "recovery" are low-paying service-sector jobs waiting on the top 5%:bussing their dishes in fancy bistros, delivering meals to their luxe condos/homes, walking their dogs, etc.

Central banks can only do one thing, and that's provide monetary welfare for the wealthy. Now that the central bank has enriched the obscenely wealthy, distorted markets globally and addicted the economy to cheap credit, the servile toadies and lackeys in the mainstream media and the Cargo Cult of economic "professionals" is finally admitting that it was all a fraud, a racket that favored the rich.

Wake up, America. The only way to stop widening wealth and income inequality and kick your smack addiction is to eliminate the pusher.

Sunday, August 28, 2016

Based on this analytic structure, Trump may not just win the election in November--he might win by a landslide.

If we believe the mainstream media and the Establishment it protects and promotes, Trump has no chance of winning the presidential election. For starters, Trump supporters are all Confederate-flag waving hillbillies, bigots, fascists and misogynists. In other words, "good people" can't possibly vote for Trump.

Even cartoon character Mike Doonesbury is fleeing to Vancouver to escape Trumpism. (Memo to the Doonesbury family: selling your Seattle home will barely net the down payment on a decent crib in Vancouver.)

For another, Trump alienates the entire planet every time he speaks.

The list goes on, of course, continuing with his lack of qualifications.

But suppose this election isn't about Trump or Hillary at all. Suppose, as political scientists Allan J. Lichtman and Ken DeCell claimed in their 1988 book, Thirteen Keys to the Presidency, that all presidential elections from 1860 to the present are referendums on the sitting president and his party.

If the public views the sitting president's second term favorably, the candidate from his party will win the election. If the public views the sitting president's second term unfavorably, the candidate from the other party will win the election.

Author/historian Robert W. Merry sorts through the 13 analytic keys in the current issue of The American Conservative magazine and concludes they "could pose bad news for Clinton."

If five or fewer are negative for the incumbent, the incumbent party will win the election. If six or more are negative, the incumbent party loses the election. Merry counts eight negatives for President Obama's second term, which if true spells defeat for the Clinton ticket.

Whether the 13 issues are positive or negative for the candidates is of course open to debate, but consider what it means that Trump won the Republican nomination despite the near-universal opposition of the Establishment.

This means 2/3 of the nation's adults no longer buy into the Establishment/ mainstream media's narrative that the economy is expanding nicely, things are going in the right direction and Hillary Clinton has a lock on the presidency.

Merry scored the economy as a positive for the incumbent party, but based on the public's view of where the nation is heading, I suspect the reality that the economy is weakening rapidly can no longer be hidden from the voting public. If we score the economy as a negative, that's nine negative keys for the incumbent party, well above the six minimum.

Based on this analytic structure, Trump may not just win the election in November--he might win by a landslide--with landslide usually being defined by an overwhelming advantage in electoral college votes or 60% of the popular vote.

As improbable as this may seem at the moment, consider the improbability of Trump capturing the Republican nomination. Consider the nature of Clinton's support: a mile wide (encompassing the entire Establishment) but only an inch deep.

If the mainstream media has failed to persuade the American public that everything's going in the right direction, why should anyone remain confident that they can persuade the American pubic that Hillary will be their president come heck or high water?

As I have noted before, there are very few ways left to stick your thumb in the eye of the elitist, predatory, self-serving Establishment that won't get you tossed in prison other than voting against their candidate, which in this election is Hillary Clinton.

Memo to Clinton supporters: if you want to persuade the American public the nation is going in the right direction, you'll have to actually change the direction rather than just promise more of the same.

Saturday, August 27, 2016

It's better, cheaper and healthier to just make what you want to eat at home.

One of the core concepts here at oftwominds.com is control what you can. We can't control very much of the world around us, but we can control what we put in our bodies, what fitness we provide our bodies and what thoughts we feed our minds.

As to what food we prepare and put in our bodies: what's been cooking at your house? Here's a semi-random selection of photos of things that have been prepared in our kitchen or gifted to our table by good friends.

Let's start with the healthy stuff and then move to the baked goodies. Here's a salad that is mostly greens from our garden. Note the purslane on top, which "contains more omega-3 fatty acids (alpha-linolenic acid in particular) than any other leafy vegetable plant." Purslane typically grows on its own as a volunteer-- before we knew its health/taste benefits, we pulled it out as a weed (dumb--it's a nutritional powerhouse!).

Art that you can eat! Incredible vegetarian spring rolls, courtesy of our good friends:

Musubi (also known as onigiri) with a piece of fried ono (a type of fish) with stir-fried zucchini and green beans from our garden:

Ulua (a type of fish in Hawaii) sashimi with a Lagunitas IPA beer. Onolicious! (The ulua came from a relative who caught it, and we reciprocated with an ohelo-apple pie--see below.)

The mouth-watering result: ohelo-apple pie, with a scoop of ice cream:

When fresh cherries were in season early in the summer, I made a number of clafoutis (claw-foo-tee) to bring to parties and pot-lucks. I love this baked custard dessert because it looks impressive but is easy to prepare:

Our good friend Katharine K. conjured up this amazing homemade strawberry shortcake for a dinner party at our house:

And as a bonus to a family meal shared in Honolulu: a full late-afternoon rainbow:

Many of the things we like to eat are not available elsewhere at any price; no store or bistro makes spring rolls or pies like this on a regular basis. Maybe some $100-per-person restaurant makes an approximation of these dishes from time to time, but who has the time or money to go searching for what may well be inferior to the homemade version?

It's better, cheaper and healthier to just make what you want to eat at home, and give any surplus to those who gift you wonderful ingredients, dishes and treats.

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